It’s safe to invest entire life savings in stocks. But it can be safer!!! (2)

Read? It’s safe to invest entire life savings in stocks. But it can be safer!!!


For pre-retirees, what do you think it's safe?

Trust this one?

Read? It’s safe to invest entire life savings in stocks

or better to do this?


Read? Is Your Nest Egg Holding Up?

The Balance Sheet

A more sophisticated way to measure the success of a retirement portfolio is the one used by large pension plans. You compare what's called the actuarial present value of your assets and liabilities. The twist: Instead of looking at current assets and liabilities, you look at the value of all your expenses in retirement as a lump sum as compared with the value of all your assets as a lump sum.

Take a married couple where the husband, 69, and the wife, 68, have an after-tax portfolio of $1 million, an annual Social Security benefit of $25,000 with a 2.5% cost-of-living adjustment, and a pension of $10,000 a year with a 75% survivorship benefit and no inflation adjustment. That income stream's present value would be $588,686. Add that to the value of their portfolio ($1 million), and you get $1,588,686 in total assets, in today's dollars.
 

On the liability side, if the couple wants to spend $60,000 a year in retirement, after taxes, with a 2.5% cost-of-living adjustment, they would need $1,402,156 in today's dollars to fund their living expenses.
 

In essence, investors with a surplus are in good shape, while those with a deficit don't have enough to pay their expenses in retirement. The latter likely would have to adjust their savings, investments or projected expenses.

Few advisers—just 15% in Russell's survey—use this method, but Mr. Greenshields suggests that it works the best. A balance sheet uses today's market information and today's interest rates as a starting point, he says.

"Our take on this approach relies on using current interest-rate curves, specifically Treasury yield curves to reflect a 'risk-free' rate. Those are about the most robust predictions of the future you can get."

 

 

 

Uncle8888's Retirement Balance Sheet

(Liabilities @ 3% inflation rate. Assets exclude value of residential home and Self-insured Fund of CPF RA, SA, MA. MediShield and Emergency Fund)

 

 

How much is enough?

Uncle8888's Formula

Expected Monthly Expense =

(Highest ever monthly expense + 4 x Average monthly expense + Lowest ever monthly expense) / 6 = $X,XXX

Annual Expected Expense = 12 x $X,XXX = $YY,YYY

Enough = 25 x $YY, YYY = $Z,000,000


Read more? Retirement Income for Life??? (9)